Evaluating Alternative Measures of Institutional Protection of Private Property and Their Relative Ability to Predict Economic Development

Abstract

A growing body of research suggests that private property rights are an important determinant of economic development. This paper assesses five commonly used measures of property rights and their relative ability to predict economic development. The International Country Risk Guide risk of expropriation and World Governance Indicators rule of law measures, as well as property rights indices from the Fraser Institute and Heritage Foundation, are all positively and robustly associated with GDP per capita. Polity IV's executive constraints measure has a statistically and economically weaker impact. This paper also addresses the methodological strengths and weaknesses of each measure to guide researchers in selecting an appropriate measure for empirical studies.

ECONOMIC FREEDOM & HAPPINESS INEQUALITY: FRIENDS OR FOES?

“…Although the magnitude of the EFW coefficient declines (in absolute value) to −0.062, it is also statistically significant at the 5% level. Given that economic freedom has been shown to be a strong positive determinant of economic development (Bennett et al , ; Faria and Montesinos ), this suggests that EFW is negatively associated with happiness inequality both directly and indirectly through the economic development channel.…”

“…Countries in which investors feel secure about their property rights, monetary and fiscal policies promote macroeconomic stability, individuals are uninhibited from starting enterprises and engaging in trade, tend to be those that are also economically developed. And while there are alternative theories such as the modernization hypothesis, which suggests that economic development leads to better institutions (Lipset ), and the grand transitions hypothesis, which suggests that institutions and development evolve together (Paldam and Gundlach ), a growing body of evidence suggests that the arrow of causation goes from economic freedom to prosperity (Bennett et al , ; De Haan, Lundström, and Sturm ; Faria and Montesinos ). The results presented here suggest that economic freedom is correlated with a more equal distribution of happiness, at least when it comes to people's subjective evaluation of satisfaction with their lives.…”